Investors look past earnings, downgrades for Athenahealth

By Russ Britt

It seems all was forgiven on Monday for Athenahealth Inc. even though the health-care information technology consultant took a hit late last week from a bad earnings report and a couple of analyst downgrades.

Athenahealth is trying to position itself to become one of the major players as the nation undertakes a massive conversion to electronic health records. But it has undergone some growing pains along the way, as evidenced by last week’s second-quarter earnings report.

Both the company’s sales and earnings fell short of analyst forecast, particularly on the earnings side. While Athenahealth was expected to report adjusted earnings of 22 cents a share, it ended up losing 8 cents a share. The company also said it sees 2013 earnings and revenue at the low end of its earlier projections. That set off alarms with several analysts. Lazard Capital cut its rating to “neutral” from “buy.” A day before the earnings release, Raymond James cut its rating to “outperform” from “strong buy.”

The market appears to be keeping its focus on the recently won contract with Ascension Health Alliance, a large non-profit system with more than 4,000 physicians. Shares soared to a new level when the deal was announced July 12 and have remained there ever since.

Analyst Charles Rhyee of Cowen and Co., however, warned that investors may not be able to rely on the rapidly climbing revenue growth that the company has experienced in recent years going into the future.

“Investors, in large part, have been willing to pay a significant premium for [Athenahealth] because of its strong top-line growth and we believe the future performance of [Athenahealth] shares is dependent on whether this revenue growth is sustainable in the near-to-medium term,” Rhyee said in a note to clients.

Although it could well meet expectations, the company could face some challenges in adding on new physicians at the pace investors are anticipating, he said.

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